As managers can navigate Storm COVID-19, expansion in investment allocations in the Asia-Pacific region is expected to continue to accelerate.
Fund managers are expanding their personal debt operations in the Asia-Pacific region this year, even when they think corporations they have already lent can fight the coronavirus crisis.
Industry veterans say that to the extent that they can navigate Storm COVID-19, anchored through leading exposures that restrict the risks of problems, the recent expansion in investor allocations in the region will continue to accelerate.
Moments like that are “the raison d’etre in the senior secured lending industry,” as they provide coverage to investors in times of turbulence and uncertainty, said Marc S. Lipschultz, co-founder and president of Owl Rock Capital Partners LP, a New York company based on. Choice Credit Manager with $18.1 billion in asset management.
Analysts and experts now see this message resonate with institutional investors in the region.
“Our customers are quite satisfied with the safe nature of personal debt,” and the number assigned to this market segment in recent years has “increased enormously,” said Valerie Wong, a Hong Kong-based mercer investment consulting firm aimed at the sector. Debt.
For example, many insurance consumers in Australia are now turning to debt benefits, “many of them for the first time,” he said.
Investors based in the Asia-Pacific region accounted for 11% of the $812 billion in global personal debt assets as of June 30, 2019, with 6% of the $518 billion in assets at the end of 2015, according to a Singapore-based spokesman. for Preqin, the London-based provider of monetary data and data of choice.
Market veterans expect interest to continue to grow despite this year’s wild run for personal debt valuations.
U.S. and European loan indices rose from par to about 75 cents per dollar in the 4-week area spanning February and March, but have since recovered to between 90 and 95 cents per dollar thanks to unprecedented political support, Edward Tong said. Managing Director based in Singapore and Head of Personal Debt for Asia at Partners Group AG. The operating environment has also improved. In general, “the transactions in which we subscribe (now) have higher returns,” as well as stricter terms and conditions, which generally reduces portfolio risk, he said.
Sponsors are reporting manageable spin-offs for their wallets to date.
Dong Hun Jang, leading chief investment officer of the 15.6 trillion won ($13.1 billion) Public Officials Benefits Association in Seoul, said POBA’s exposure of about $500 million to personal debts only “slightly submerged” at the end of June, without default. With global markets recovering since then, Jang said his team expects a higher valuation until late September.
For the most part, said Nam Tran, representative of investment advisory firm Frontier Advisors Pty.Ltd. Based in Melbourne, the effect on personal debt portfolios is limited and “we are comfortable recommending customers make a strategic allocation to manage them.”
Marc S. Lipschultz of Owl Rock Capital Partners
Assets controlled through Owl Rock on behalf of investors in Asia Pacific are lately only $700 million, less than 4% of the company’s total. But with the growing interest in the region in making strategic allocations to personal debt, Owl Rock is now focusing on Asia “as an area of significant expansion,” Lipschultz said.
Meanwhile, the number of managers planting their flags in the region continues to grow.
Allianz Global Investors hired Sumit Bhandari in 2018 as senior portfolio manager, credits to Asia, investments of choice, to expand borrowing capacity in the region.
Bhandari said in an interview that he had assembled a team of seven other people and, by concentrating on medium-sized corporations in the region with an EBITDA between $15 million and $100 million, he had invested more than $300 million in capital provided through Allianz Global. Investors over the age of 18. Month.
On July 6, Muzinich-Co., a New York-based credit manager with $38 billion in assets, announced that he had hired Andrew Tan in Singapore as Managing Director and Chief Private Debt officer of Asia-Pacific to create a pan-Asian capacity, with 4 to six business professionals, for the $2 billion debt platform filed through Muzinich in 2014.
Glenn Clarke, managing director and institutional portfolio manager of Hayfin Capital Management LLP, a London-based election company with more than 17 billion euros ($20 billion) in assets under management, said in an interview that Hayfin is looking to open a workplace in Singapore. until the end of 2020 to expand its global success and personal debt offerings. The workplace will seek investment opportunities and serve a developing Asian investor base that accounts for 20% of Hayfin’s assets.
And Schroder Investment Management announced on August 14 that it had appointed its first debt manager for Australia, with the goal of forming a five-person team for the asset class.
Meanwhile, ADM Capital, a Hong Kong-based personal credit manager targeting Asia with approximately $2.4 billion in assets under management, has added 3 professionals to its investment team this year, bringing their duration to 17, aiming to hire one or two more. said Christopher Smith, the company’s chief investment and marketing officer.
These increases occur at a time when managers have had to strive to keep their existing portfolios of small and medium-sized enterprises based primarily in the United States and Europe from being activated through the coronavirus crisis.
On July 29, Proskauer Rose LLP published a quarterly new York-based default credit rate, showing the overall default rate of 546 secured senior loans and active unitranches in the United States, which emerged 8.1% from 5.9% in the past. Quarter.
Peter J. Antoszyk, Proskauer’s spouse and co-director of the company’s personal credit restructuring group, said in an email that he did not see the general spouses that Proskauer advises losing sleep. “Private lenders were preparing for a recession long before COVID arrived,” and with restrictive lending agreements, it’s more about allowing lenders in those agreements to be more proactive and resolve the disruptions earlier, he said.
For KKR Asia Ltd. this year, ensuring that its invested capital remains resilient has been a priority, which requires time and “a lot of heavy work,” said Soon Jin Lim, Singapore-based managing director and head of credit for Southeast Asia. . Training
“We dive deeply into each and every position in the Asia portfolio to classify the coVID effect and map action plans from worst-case to best,” Lim said.
Meanwhile, there have been coronavirus winners, such as virtual services, as losers this year.
“Much depends on portfolio construction,” said Mr. Smith of ADM Capital. ADM has worked to identify a well-diversified portfolio across countries and sectors, but “if you have a basically hotel and tourist portfolio, you’ll face vicious neighborhoods,” he said.
A number of managers expressed confidence on that score. “We have limited exposure to manufacturing and cyclicals,” sectors which have been hit hard this year, Hayfin’s Mr. Clarke said. Of the more than 100 companies in which Hayfin has made senior-secured private credit investments, at present there are only a very small percentage that “we feel we’re going to have to enforce or take action to protect our capital,” he said.
Bhandari, of Allianz Global Investors, said its portfolio emerged unscathed from this year’s volatility, aided by a focus on healthcare, chemical specialties, telecommunications towers, infrastructure facilities and knowledge centers.
However, while the economic benefits of COVID-19 leave managers facing challenges, the focus is now on how they interact with corporations in their portfolio “to achieve the most productive end results conceivable for corporations as well as investors,” Muzinich said. . Tanning.
“We see many loans being restructured, what we call “modifying and extending,” said Mrs. Wong of Mercer, a scenario in which, for example, a lender can allow a controlling company to skip a quarterly interest payment in exchange for a settlement. higher returns in the future.
Owl Rock Chief Executive Craig W. Packer said his team “executed 8 significant adjustments during the quarter” in a broader portfolio of 102 companies in exchange for “120 additional basis points.” spread across those investments. “
While managers can generally avoid major pitfalls this year, demand for personal loans in Asia-Pacific, which remains off the speed of personal capital, infrastructure or real estate, continues to accelerate, analysts say.
With relatively high exposures in the capital stack, personal loans as an asset elegance are a matter of protection from decreases and, to the extent that managers are doing their job well, this deserves to “give a boost for more allocations,” Mr. LIM from KKR.
The forces that have propelled pension funds, insurance companies and other giant investors toward personal loans over the more than 10 years, such as low yields on sovereign bonds, have not left with the coronavirus crisis; have more time, said Brian Coleman, managing director of the New York-based portfolio control group of J.P. Morgan Alternative Asset Management.
Managers anticipate that overall next year will be smart for them and for customers.
So de Muzinich said he thinks it’s “a moment” to start a direct lending business. In the absence of legacy exposures, the merger may be in providing new loans in an environment where the “restart” market in March paved the way for commitments, portfolio protections and more powerful returns, a recipe for fake harvests in the coming years. he told me.
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